What went wrong with Hyflux?

34,000 retail investors invested a total of $900 million in the Hyflux preference shares and perpetual securities. I am not one of them.

Of this sum, $500 million were invested in the perpetual securities issued in 2016. Many of the people who bought these securities were not savvy investors.

They thought that these securities were safe because they were approved by the relevant authorities for sale to retail investors and the water plants operated by Hyflux are strategic national assets.

Within two years of the issue of the perpetual securities, Hyflux had to apply to the court for protection against creditors and to reorganize the company.

The retail investors are likely to lose more than 80% of the investment. It could be as much as 97%.

What went wrong?

In 2011, the Public Utilities Board called for a tender for the Tuaspring desalination plant. Hyflux submitted a tender and proposed an integrated desalination and power plant. They were awarded the tender by PUB.

The tender asked the operator to quote a price for the supply of water over the concession period of 25 years with no adjustment for the cost of power.

Why did PUB asked the operator to fix the price of water in this manner? Surely they know that a large part of the cost of producing desalinated water depends on the cost of energy, which is likely to be volatile.

Perhaps this condition was the reason for Hyflux to venture into the power generation market. They needed to produce their own power plant to lock up the the future cost of power.

Apart from providing power for the desalination plant, Hyflux decided to build a power plant that could supply electricity to the national grid.

They signed a contract, lasting several years, to buy LNG gas for the power plant, probably at the then prevailing price.

This contract required Hyflux to take the specified quantity of LNG gas or to pay a severe penalty if they do not take the gas.

At that time, the wholesale price of electricity, that is the price that the electricity produced by the power plant and sold to the national grid, was at a level that allowed the power plant to be profitable.

There were subsequent events that turned out to be a disaster for Hyflux.

During 2012 to 2014, and that is after Hyflux started to build the power plant, the Energy Market Authority gave vesting contracts to several new power generating companies to build additional capacity amounting to 3,000 MW.

The peak demand for electricity at that time was probably only 7,000 MW and that demand was already more than adequately provided by the generating companies at that time.

An industry expert said that the additional capacity of 3,000 MW was totally unnecessary.

Why did EMA have to increase the power generation capacity? With the additional capacity, the total capacity became almost twice of the demand.

As a result of this overcapacity, the wholesale electricity price crashed from $215 in 2011 to $63 in 2016.

The sharp decline in wholesale electricity price was beyond the control of Hyflux or the existing generating companies. They suffered huge losses.

The new generating companies were given LNG vesting contracts from EMA that guaranteed them a price according to a specified formula. Someone estimated the guaranteed price to be twice of the prevailing market price in 2016.

Furthermore, the vesting contract required the generating company to provide a specified volume of electricity into the national grid. This contributed to the glut.

In their website, EMA said that the generating companies had to make a commercial decision before deciding to enter into the energy market. While this statement can be applied to the new generating companies, it cannot be applied to the existing generating companies.

The existing generating companies had no control over subsequent actions taken by EMA to increase the generating capacity (to an disastrous level) but had to suffer the huge losses arising from the consequent drop in wholesale electricity price.

Furthermore, the new generating companies were protected (to a large extent) by the price offered by the vesting contract while some of the existing generating companies, such as Hyflux, were not.

Clearly, Hyflux was a victim of actions and decisions taken by EMA. This has caused the huge losses suffered by Hyflux since 2015.

I do not wish to imply that EMA has to take the total blame for the disaster that befell Hyflux.

I believe that the board and management of Hyflux have to take a large share of the blame for the disaster, due to their bad judgement and business decisions.

Nevertheless, it was a disaster for Hyflux.

What is clear is that 34,000 retail investors of Hyflux may see their total investment of $900 million almost wiped out.

For many of these investors, these securities represent a large part of their savings that the need for their retirement.

It is also clear that EMA should not have allowed the serious overcapacity and overproduction in electricity to occur, which caused the wholesale price to collapse.

If there was no severe overproduction, the wholesale electricity price would not drop so sharply. Hyflux would not have suffered the large losses that caused the value of the securities to be nearly worthless.

This being the case, and it was the result of decisions by a government agency, it is only fair for the government help to find a way to mitigate the loss suffered by the retail investors.

I suggest that the government ask the Public Utilities Board to take over the integrated water and power plant, namely Tuaspring, from Hyflux and pay a fair price for the integrated plant. It should not be $0.

Some people say the government should not bail out a private company that has suffered a large loss due to its commercial decision.

I agree with this general principle. But in this case, I hold the view that a government agency was responsible to a large extent for the huge losses suffered by Hyflux.

I suggest that the fair price can be determined by an independent panel or by the court, but it has to be done on the principle of sharing the loss fairly among the parties.

I do not see paying a fair price as being a bail out. It is not.

After taking over the integrated plant, there is no need for the PUB to continue to generate power that is not needed by the energy market. This loss can be cut.

Let me end my talk with a call to the government to ask the Public Utilities Board to take over Tuaspring from Hyflux and offer a fair price for the integrated plant.

*Speech by Tan Kin Lian on Hyflux delivered at Hong Lim Park on 30 Mar 2019.

 

 

Sponsored Content

32 Responses to “What went wrong with Hyflux?”

  • No Dafts or Dogs Allowed:

    First, you tell TRE readers for $0 and now “should not be $0″?
    Looks like you have to pay some high profile commentators in TRE for their advice in pointing out your wrong assertions.

    Tan Kin Lian:
    I suggest that the government ask the Public Utilities Board to take over the integrated water and power plant, namely Tuaspring, from Hyflux and pay a fair price for the integrated plant. It should not be $0.

    Then what is it? Who is going to pay for the “white elephant” Tuaspring genco? Will you?

    Tan Kin Lian:
    I do not see paying a fair price as being a bail out. It is not.
    After taking over the integrated plant, there is no need for the PUB to continue to generate power that is not needed by the energy market. This loss can be cut.

    Disclaimer: I cannot be held responsible for the above, as apparently one of my dogs have learned how to type.

    GD Star Rating
    loading...
  • N.Jungne:

    Looks like swallowing bones and all.

    GD Star Rating
    loading...
  • LIONS:

    TKL,you are incredible,how to be true oppo hero?

    You said you not invested but maybe your family or relatives did?!

    This is not a NATIONAL ISSUE PER SE.
    ONLY 34K blur but GREEDY investors(not necessarily all sgs) are invloved.
    How MANY SGS LOSE THEIR DECENT JOBS N HAVE NO MONEY TO LIVE DECENTLY N DO WE COMPENSATE THESE SGS FOR LOSS OF INCOME ETC?

    THERE ARE MORE IMPORTANT MATTERS LIKE CPF,HOUSING,MEDICARE COSTS ETC THAT NEED YOUR CONCERN MUCH MORE THAN THE PLIGHT OF THESE BLUR GREEDY 34K HYFLUX SUPPORTERS.

    IF YOY LIKE,USE YOUR OWN MONEY TO HELP THEM.
    BUT,I WOULD PREFER YOU GO HELP THOSE WHO DONT EVEN MONEY TO EAT ,LET ALONE THROW EXTRA MONEY AT HYFKUX?

    GD Star Rating
    loading...
  • Selfish Sinkie Syndrome:

    Dear Mr. Tan KL,

    While I may agree somewhat to your analysis that it was the PUB actions that created an oversupply situation in the electricity generation market, leading to Hyflux (and other companies) being subsequently unprofitable; however, I do not think your proposition that the government compensate the retail investors to be a sound or sensible one.

    This is exactly what is called moral hazard, and we should,…no MUST, avoid such silly and half-baked prognostications to correct apparently private and commercial investment decisions.

    Why should the government (using tax-payers monies for that matter), “bail out” Hyflux or compensate any of her retail investors?

    Nobody forced them to buy into the Hyflux hype, regardless whether it is seen as a “stable investment” underwritten supposedly by an equally “stable” PAP government or not.

    Conversely, if Hyflux management were smart enough not to bid for the project, or smart enough to make rapid changes to adapt to the new situation and somehow survived; and those retail investors then went on to make a big bundle of money on their Hyflux shares or dividends; then can you and me (as everyday tax-payers) ask the government to enforce a rule and get them to SHARE those profits with us too? lol.

    There is no end to such circular arguments that so-and-so or such-and-such is responsible for market developments or changes in the commercial sector.

    Caveat Emptor applies for ALL private investments and any commercial decisions in a market-driven economy.

    YOU are fully responsible for your own investment decisions, no matter what the nice IPO brochure states or the sweet smiling investment salesgirl tells you. You can only blame yourself if the investment fails or if you did not get out fast enough.

    No disrespect to you sir, but I am truly appalled that anyone would even go to such an extent with such a ridiculous proposition.

    There is nothing wrong with PUB now making the “killing” by getting Hyflux assets for “free” or some literal cents on the dollar.

    The PAP and their PUB cronies are vultures by nature, so it is only natural that they swoop in now to take their share of the rotting carcass now, yeah? Vultures got to do what they were born to do. lol.

    GD Star Rating
    loading...
  • Daffy Duck TKL:

    If he managed to get PUB to bailout these “gamblers” he’ll become even more popular. The rest of the citizens become the “Ah Gong” (dafts)

    LIONS: TKL,you are incredible,how to be true oppo hero?

    You said you not invested but maybe your family or relatives did?!

    GD Star Rating
    loading...
  • patriot of TUMASIK:

    Why???… Mr Tan…it is 2 big zeros… O-ver-rated O-ver HYPED… aptly named

    High Fluxed…to Fleece the Public

    GD Star Rating
    loading...
  • I'm Halimah also Jiak Liao bee:

    If there’s really a glut, why is SP still charging us such a high price for our power and utility bill ???

    GD Star Rating
    loading...
  • HarderTruths:

    Abysmal management and getting common people to buy into the bullshit. No different from all the other advertised junk.

    Except this one died a bit too early. Ooops – sorry lah.

    GD Star Rating
    loading...
  • apek:

    there was overcapacity in our energy consumption. It was doube what we needed. Was PUB projection demand from a 10 million population?

    And when the 2011 and 2015 elections came immigration rate was slowed and that left us with overcapacity.

    There was a recorded speech by Olivia that they built the plant excess capacity based on the polulation projections figures supplied by the PUB .

    GD Star Rating
    loading...
  • Bad Boy:

    人生如赌博 赢输都无时定
    赢咗得餐笑 输光唔驶兴。

    GD Star Rating
    loading...
  • Bapak:

    There was an interesting article to read in Yahoo news. It said, “We invested in Hyflux because TH invested”. Now, these 34,000+ stupid investors had never lernt from history. Whatever TH touches, stay away. They are buy-high-sell-low type of investor. DONT FOLLOW IDIOTS! Because they are using your money, not their own money, STUPID IDIOTS!

    It concludes yet again, Sinkies are STUPID! How many of these investers are foreigner? Maybe very very little. Why? They are not stupid. Now you know why SGs are jobless, cause no bosses will employ stupid people. Singapore is FUCK with stupid citizens.

    GD Star Rating
    loading...
  • Bapak:

    There is another lesson to learn from here. Water & fire dont mix. Any Fung Shui master will tell you this theory. Dont expect Aquaman to be Human Touch right. Stupid investers deserved to be screwed just like Hyflux never observed tbe rule of nature. Greed is number one downfall.

    GD Star Rating
    loading...
  • Hagen-Diaz:

    This crisis must teach harsh lessons to the most reckless investors but
    Mr. Tan Kin Lian wants to put Singapore taxpayers on the hook for Hyflux’s bad business practices. Taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right.

    It seems that all of those “fat cats” who are responsible for this financial meltdown are still living a very privileged life , unlike the many thousands of Singaporeans who aren’t too sure of covering even basic costs of living now, and in the very near future.

    All of Tan Kin Lian’s talks of “bailouts” seem directed to make government pay for worthless private company assets (built on a huge financial bubble). It looks like the taxpayer is going to get sucker punched again.

    It’s infuriating. It seems to me, he is collectively forgetting that in the end government needs to be solvent and responsible to it’s “stockholders”, also called tax payers.

    Singapore needs private enterprises, but it does not need those fat cats who had run them into the ground. Bond and retail holders have already taken the hit. Their retirement fund has shrunk because the high stakes gamblers in the executive towers of Hyflux have lost their chips. Now they want to take from citizens’ and their children’s and grandchildren’s too.

    If successful, the fat cats will be riding high again. They know that they can’t let their institutions fail; but we can let the fat cats fail and we should.

    GD Star Rating
    loading...
  • Bapak:

    You are very wise. I am training my monkeys to type and they are learning very fast. Dont think the incoming fake news law apply to animals. If they can accept dancing rats, dont think that animal loving Sham would use the law on them.

    No Dafts or Dogs Allowed:

    Disclaimer: I cannot be held responsible for the above, as apparently one of my dogs have learned how to type.

    GD Star Rating
    loading...
  • Soon:

    When new fake law come out.

    The word “investment”need to change to “gamble”

    In buying shares.i think.investment don lose.

    GD Star Rating
    loading...
  • Soccerbetting2:

    While all Hyflux investors lose tons of money,yet Hyflux Olivia Lum is still a super wealthy woman keeping her entire fortune. The government should get PUB to get the money from Olivia Lum before doing any repair to desalination plant of Hyflux. The government should get all the wealth of Hyflux rich woman Olivia Lum and her family – her gold, diamonds, jewellery, landed bungalow and condominiums, luxury cars, shares, equities, both Singapore bank and overseas bank account,…… and make Olivia Lum a bankrupt to pay back investors first.

    GD Star Rating
    loading...
  • Soccerbetting2:

    While all Hyflux investors lose tons of money,yet Hyflux Olivia Lum is still a super wealthy woman keeping her entire fortune. The government should get PUB to get the money from Olivia Lum before doing any repair to desalination plant of Hyflux. The government should get all the wealth of Hyflux rich woman Olivia Lum and her family – her gold, diamonds, jewellery, landed bungalow and condominiums, luxury cars, shares, equities, both Singapore bank and overseas bank account,…… and make Olivia Lum a bankrupt to pay back investors first. Why Hyflux company got $3,000,000,000 debt, yet Olivia Lum no need to go bankrupt to pay back all investors first? Something is not right. Who knows whether Olivia Lum has already siphon all Hyflux company’s funds out or not before the bad news appear on media?

    GD Star Rating
    loading...
  • TH also loss alot in Hyflux:

    Same la they also loss alot in Hyflux.

    You think they can save these investors and bondholders?????

    Fat Hope.

    TKK.

    GD Star Rating
    loading...
  • their stable investment:

    //Nobody forced them to buy into the Hyflux hype, regardless whether it is seen as a “stable investment” underwritten supposedly by an equally “stable” PAP government or not.//

    aiyoh. therefore it is also quite alright for the investors to pressure (protests or whatnot means) a condition / an environment for their stable investment to stay stable right ?

    should anyone / whatever ‘force’ (discourage) these investors to assert pressure to get back whatever value left that can be gotten back.

    //Caveat Emptor applies for ALL private investments and any commercial decisions in a market-driven economy.//

    caveat emptor also means that the consequences can be nasty for all the stakeholders involved (the company, the investors, the value chain stakeholders, the authorities, and users of a strategic important resource, water that is) – and we never know how this is going to drag on and play out finally – with plenty of collateral damage ?.

    water and its secured supply right ? well the company used to be the darling that at last, water sustainability for sinkie land right ?

    //There is no end to such circular arguments that so-and-so or such-and-such is responsible for market developments or changes in the commercial sector.//

    exactly. when significant money is involved (could be the investors’ life saving or retirement funds), everyone wants their way (arguments ?).

    GD Star Rating
    loading...
  • Stupid ? Not really:

    Stupid ? Not really.

    Find some reason to blame.

    賴屎賴尿。

    GD Star Rating
    loading...
  • convincing on the surface:

    //HarderTruths:
    March 31, 2019 at 10:59 pm (Quote)
    Abysmal management and getting common people to buy into the bullshit. No different from all the other advertised junk.//

    what to do ? sometimes it takes real life lessons for people to learn / to appreciate better than conventional text book lessons (theories).

    just like slick salemen talk / koyok adverts / ownself-check-ownself propaganda and all the nice presentation packs, it does sound good and convincing on the surface.

    GD Star Rating
    loading...
  • oxygen:

    THE LOSERS IN HYFLUX INVESTMENT DIDN’T DO THEIR HOMEWORK, some probably read EXCLUSIVELY AH KONG PO CHUA (Pravda Sinkieland) in their entire lives and never read even ONCE, JUST ONCE ONLY, the constant illuminations in the social media on inherent investment risks alongside Ah Lian’s wonder investment skills and achievements.

    None of the protesters – until 31 March protest – has never hear a voice in HLP, thinking that these are fringe lunatics and they are the smart ones.

    GD Star Rating
    loading...
  • oxygen:

    SAD BUT TRUE, REALITY HITS HOME for the 34,000 defeated souls in the Hyflux sorry debacle.

    Asked how many read the 197 pages in the Hyflux perpetual securities issue “prospectus”, how many raised hands?

    Financial market cannot reward RECKLESS COMPLACENT GAMBLERS living in the hyped-up utopia of PAPpys fantasy land “sure win bet” of wonder water technology utilities.

    GD Star Rating
    loading...
  • The people awakes:

    This Hyflux issue is very important for ALL Singaporeans.

    From news,:
    Mdm Hong said, “I’m voting ‘no’ on April 5. If someone takes away your money and then gives you back 3 per cent, and tells you that you should be very thankful, how would you feel?”
    “I can’t believe they are telling us that something is better than nothing… Please don’t insult us further,” she added.

    The 70% better learn from Mdm Hong. Don’t be happy when you get a feather back after losing a chicken. Ok? Even if you get a drumstick back, don’t be happy.

    Follow Mdm Hong and vote “NO” at your next chance to vote.

    GD Star Rating
    loading...
  • Bad Boy:

    Everything theres risk and consequences. Sometime risk high consequences. Sometime risk low consequences high.

    Investment or take a botox injection ( even you are season with it will somehow still cost one’s life )

    As for what minister cut ribbon at a new company. Thats formality or image issue. Its perception or impression or expectation.

    Just like the man ( coach is it ? ) who ordered grab food. Delivery was late , probably hungry therefore angry. Ready to screw the delivery person. Later discover the delivery person a disable lady in a wheel chair. Suddenly feel shame, ( no issue to makan 30 mins later ) and probably pay plus give good tips. Later facebook or blogging, everybody praise him or positive him. What the heck , nobody bother to ask him if the delivery person is a normal person ( man instead ) will he still screw him ?

    99% quite sure he will !

    GD Star Rating
    loading...
  • Dear Mr Tan Kin Lian:

    Can’t Hyflux do what as you suggest below?
    Quote
    After taking over the integrated plant, there is no need for the PUB to continue to generate power that is not needed by the energy market. This loss can be cut.
    Unquote

    Hyflux owns the plants for several years by now.

    GD Star Rating
    loading...
  • Beef up balloon:

    Just like blowing hot air/helium into a balloon to look nice before party starts. After party and grandiose, the decoration piece shrank as air leaks and became useless. But you still paid for buying that helium balloon which is not cheap compares to the Daiso ones into which you have to blow your own hot air. What an illusion.

    GD Star Rating
    loading...
  • Another perspective:

    Many people do not even have $1000 to buy Hyflux preference share or perpetual securities.
    Many do not even know how to use CPF money to buy Hyflux share. Those using CPF money, I am not sure if this is the first time they invest in any investment instruments.
    Most people want to maximize return be it bank interest or investment.
    People invest to increase their wealth, and one day when they retire their wealth increases, money lost in investment will be part of their retirement fund, hosuing fund, children study fund, etc.
    Yes, there are bank staff who persuade clients to invest like Lehmen minibond, I am not sure about Hyflux’s.
    You were CEO of NTUC Income, your staff sold internet stock funds like hot cake on the late 1990s and earned fat commissions, you as CEO was awarded handsomely. When the internet bubble burst, yuour fund plunged, your insurance agents kept their commission, you kept your job, no pay crawl back.
    Did you lift a little finger to resolve those who lost their retirement money?
    Is it because you were a PAP member then? Chairman of PAP Marine Parade branch, waiting to be called to do “national service” to stand as a PAP camdidate for Marine Parade GRC?

    GD Star Rating
    loading...
  • Boh Chee = Human Nature:

    Did they really lose 100 % ?

    I doubt it. Cannot be a person throw all his/her savings + CPF ” All IN ” into Hyflux. The most i estimate 80% lost , bal of 20% as backup. Sure have one. All act pity or angry just to gain support. If take risk and take loan from credit card / bank loan than too bad. You assess wrong you have bear it.

    Give 3 % not happy then 6 % , thats double from 3% . Still not happy than i suggest dont take a single cent . Show back bone. Since somebody said they are not beggars.

    In the worst case, many tall buildings and reservoirs here to consider. I doubt they have the guts.

    GD Star Rating
    loading...
  • Soccerbetting2:

    Just wonder whether our CPF funds can be used to buy Hyflux shares previously ? Anybody knows? Thanks.

    GD Star Rating
    loading...
  • Sad situation:

    For the 34,000 who lost, many may be their retirement fund.
    Sad but many may not be aware of the risk involved…
    Sad situation.More need to be done to educate this group on the risks…
    They may lose what they cannot lose….

    GD Star Rating
    loading...
  • Parsh Singh:

    Just goes to show you cannot trust anyone except yourself.

    GD Star Rating
    loading...

Leave a Reply

 characters available

Member Services
Self-SupportMembers Login
Sponsored Advertisement

Search On TR Emeritus
Sponsored Advertisement

Most Recent Comments
  • NotMyProblem: @Lim Tean; Let’s face it, there are people who love to be slave. Slaves do not need to think....
  • DoYouWantTheTruth...: ..and nothing but the truth? Then I think in the future, there will be a lot of complaints and...
  • Bbc: Nus and police appear to be sexist for treating peeping criminals against women so lightly.
  • Bapak: Now we understand why so many youngsters have to consult IMH. They are so confused taking completely naked pix...
  • No Dafts or Dogs Allowed: The fire had already started long ago. Problem is 70% daft frogs are still sitting on it....
  • Flabbergasted: what happened to our champion of rights, san-mu-kan ? so quiet over this episode? say something lah,...
  • patriot of TUMASIK: Cry for Thatman: Sorry, I disagree (btw, I didn’t thumb you down, apparently someone...
  • Great Asia: Those people listed are all angmoh worshipping Bananas. They are just leftist or Rightist Bananas! All...
  • AristoCATs cant Handle d Truth: > SG ” is not ready for a minority PM” - It is Fake News - Just like...
  • Great Asia: Democracy, Equality, Justice, Peace & Progress.?!!!! Democracy = The Bible = Christianity = A...
  • patriot of TUMASIK: FAKE all the WAY…with Fake 1st World status leading The WAY!!! and FAKE is a four letter...
Announcements
Advertisements
Visitors Statistic
Latest Statistic
Advertisements